Goldman Sachs: These are the 24 best stocks to buy now as the market rally stretches valuations higher
- Markets have rallied on the back of strong earnings, good macroeconomic data, and bullish sentiment.
- But it’s easy to get swept up in blind optimism, and investors need to proceed with caution.
- Goldman Sachs compiled the 22 best investing ideas from its US analysts, regardless of sector.
Lower inflation, signals that the Federal Reserve will end its rate hike cycle, and data indicating that the United States may just avoid a recession after all have cheered investors.
With the influx of good news has come a wave of investor optimism, and the S&P 500 has risen higher than many analysts expected it to go this year. However, the stock market’s strength may be its undoing, as valuations outpace reality and investors may drag the market back down to earth.
“US equities are trapped between macroeconomic news and valuation.” “Stocks do not appear cheap, but there is little doubt that the macro news — higher growth, lower inflation — is a more equity-friendly mix than was expected,” wrote Steven Kron, Goldman Sachs’ director of Americas equity research.
Kron broke down what he’s seeing in markets right now — and, more importantly, which stocks Goldman Sachs analysts are bullish on right now — in a note to clients published on August 1.
Too much good news can be a bad thing
Kron highlighted a number of positive signs of stock-market and economic health that have emerged in the last month.
These include strong performance by bank stocks following the earlier this year’s banking crisis, a recovery in oil prices after a recent downward trend, and increased advertising spending following a slowdown in the first half of the year.
In terms of the broader economy, it appears that the Federal Reserve’s rate hikes have been effective, with core PCE inflation rising only 4.1% year on year. Despite tight monetary policy, economists across the market, including Goldman Sachs’ own Jan Hatzius, believe that a recession is far less likely than it was at the start of the year.
“Receding inflation, an end to Fed tightening, and accelerating growth – these are all the makings of a Goldilocks environment for stocks, potentially,” Kron concluded.
However, not all news is good news. While investors will likely continue to focus on falling inflation data as a sign that it’s time to return to stocks, Kron is concerned about investors’ habit of buying on any decent economic data readings — even if the data itself isn’t particularly strong.
This has pushed markets higher, but it has also stretched valuations, according to Kron. He believes stocks are currently overpriced, with the S&P 500 only 4% below its peak in early 2022, and he is unsure how much further it can rise.
“Because the market has already taken meaningful credit for better growth and inflation news, the road ahead could be a little bumpier than in the last few weeks,” he wrote.
The 24 best stocks to buy in today’s market
It’s still a stock-picker’s market, and Kron has some recommendations for investors who want to strike a balance between avoiding over-exuberance and profiting from the current rally.
The 24 stocks listed below are Goldman Sachs analysts’ current top picks across a variety of investing styles and sectors. Analysts anticipate strong risk-adjusted returns for each of the stocks listed below, and the median upside to price target for the stocks listed below is 21%, indicating that these stocks have plenty of room to rise.
Each company’s ticker, price target, percent upside to that target, upside to next year’s expected earnings versus consensus estimates, and the percentage of Wall Street that recommends the stock as a buy are listed alongside it. In addition, each stock’s investment thesis is summarized briefly.
1. Shift4 Payments
Ticker: FOUR
Market Cap: $5.7 billion
Price Target: $88
Upside to Price Target: 28%
GS vs. Consensus FY2: 6%
Street % Buy: 85%
Thesis: “Rapidly modernizing payments platform with a “captive” volume growth opportunity.”
2. Spirit Aerosystems
Ticker: SPR
Market Cap:$2.8 billion
Price Target: $45
Upside to Price Target: 41%
GS vs. Consensus FY2: >20%
Street % Buy: 47%
Thesis: “Leveraged exposure to the long tail of post-pandemic global airplane re-supply.”
3. TE Connectivity
Ticker: TEL
Market Cap: $45 billion
Price Target: $168
Upside to Price Target: 17%
GS vs. Consensus FY2: -1%
Street % Buy: 41%
Thesis: “A key ‘shovel supplier’ in the EV gold rush with strong FCF.”
4. Chevron
Ticker: CVX
Market Cap: $303.3 billion
Price Target: $187
Upside to Price Target: 14%
GS vs. Consensus FY2: 7%
Street % Buy: 57%
Thesis: “Leading capital returns story supported by a clear cash flow inflection in 2024.”
5. First Solar
Ticker: FSLR
Market Cap: $22.2 billion
Price Target: $292
Upside to Price Target: 41%
GS vs. Consensus FY2: 2%
Street % Buy: 52%
Thesis: “Dominant franchise in an industry benefiting from the Inflation Reduction Act (IRA).”
6. Warner Bros. Discovery
Ticker: WBD
Market Cap: $31.8 billion
Price Target: $20
Upside to Price Target: 53%
GS vs. Consensus FY2: 2%
Street % Buy: 59%
Thesis: “Merger synergies and new streaming launch provide path to unique FCF growth in a Media stock.”
7. HCA Holdings
Ticker: HCA
Market Cap: $75.1 billion
Price Target: $329
Upside to Price Target: 21%
GS vs. Consensus FY2: 2%
Street % Buy: 81%
Thesis: “A two-sided post-pandemic beneficiary with a longer-than-appreciated tail of pent-up demand.”
8. Merck
Ticker: MRK
Market Cap: $270.6 billion
Price Target: $131
Upside to Price Target: 23%
GS vs. Consensus FY2: 3%
Street % Buy: 70%
Thesis: “Strong base business growing through acquisition and innovation in immunology and cardio.”
9. Vertex Pharmaceuticals
Ticker: VRTX
Market Cap: $90.7 billion
Price Target: $427
Upside to Price Target: 21%
GS vs. Consensus FY2: 4%
Street % Buy: 66%
Thesis: “Undervalued pipeline alongside a dominant franchise.”
10. Bath & Body Works
Ticker: BBWI
Market Cap: $8.5 billion
Price Target: $50
Upside to Price Target: 35%
GS vs. Consensus FY2: 4%
Street % Buy: 60%
Thesis: “Turnaround with new management pulling on low hanging sales driving levers.”
11. J.B. Hunt Transportation Services
Ticker: JBHT
Market Cap: $21.1 billion
Price Target: $225
Upside to Price Target: 10%
GS vs. Consensus FY2: 4%
Street % Buy: 56%
Thesis: “A post-pandemic echo-boom beneficiary as goods traffic rebounds.”
12. Southern Co.
Ticker: SO
Market Cap: $79 billion
Price Target: $80
Upside to Price Target: 11%
GS vs. Consensus FY2: 0%
Street % Buy: 42%
Thesis: “Non-traditional clean energy grower with above average returns.”
13. Macy’s
Ticker: M
Market Cap: $4.5 billion
Price Target: $23
Upside to Price Target: 39%
GS vs. Consensus FY2: 1%
Street % Buy: 38%
Thesis: “Department store focused on profitable growth through a host of self-help initiatives.”
14. Johnson Controls International
Ticker: JCI
Market Cap: $47.7 billion
Price Target: $81
Upside to Price Target: 16%
GS vs. Consensus FY2: 0%
Street % Buy: 71%
Thesis: “A late-stimulus post-pandemic beneficiary.”
15. Apple
Ticker: AAPL
Market Cap: $3,089.9 billion
Price Target: $222
Upside to Price Target: 13%
GS vs. Consensus FY2: 6%
Street % Buy: 67%
Thesis: “Sustained Services expansion story enabled by growing installed base.”
16. WW International
Market Cap: $0.9 billion
Ticker: WW
Price Target: $13
Upside to Price Target: 12%
GS vs. Consensus FY2: >20%
Street % Buy: 50%
Thesis: “Corporate transformation with a steep runway for growth.”
17. American International Group
Ticker: AIG
Market Cap: $43.6 billion
Price Target: $79
Upside to Price Target: 31%
GS vs. Consensus FY2: 13%
Street % Buy: 61%
Thesis: “Self-help story with long runway to returns improvement.”
18. JPMorgan Chase & Co.
Ticker: JPM
Market Cap: $461.6 billion
Price Target: $173
Upside to Price Target: 10%
GS vs. Consensus FY2: 9%
Street % Buy: 74%
Thesis: “Market share gainer with best-in-class returns through the cycle.”
19. PPG Industries
Ticker: PPG
Market Cap: $33.9 billion
Price Target: $175
Upside to Price Target: 22%
GS vs. Consensus FY2: 6%
Street % Buy: 48%
Thesis: “A price/cost inflection story with post-pandemic topline momentum.”
20. Amazon
Ticker: AMZN
Market Cap: $1,371.6 billion
Price Target: $165
Upside to Price Target: 23%
GS vs. Consensus FY2: 10%
Street % Buy: 94%
Thesis: “Rebounding eCommerce platform with potential for another AWS adoption cycle with AI tailwind.”
21. Blue Owl Capital
Ticker: OWL
Market Cap: $17.3 billion
Price Target: $15.5
Upside to Price Target: 26%
GS vs. Consensus FY2: 5%
Street % Buy: 83%
Thesis: “Riding the mass affluent retail private investment wave.”
22. Tanger Factory Outlet Centers
Ticker: SKT
Market Cap: $2.5 billion
Price Target: $25
Upside to Price Target: 7%
GS vs. Consensus FY2: 3%
Street % Buy: 11%
Thesis: “Organic growth on sale in a counter-intuitive end market.”
23. Republic Services
Ticker: RSG
Market Cap: $47.8 billion
Price Target: $175
Upside to Price Target: 16%
GS vs. Consensus FY2: 0%
Street % Buy: 50%
Thesis: “Margin upside in a consolidated end-market with an energy development kicker.”
24. Salesforce
Ticker: CRM
Market Cap: $219.2 billion
Price Target: $325
Upside to Price Target: 44%
GS vs. Consensus FY2: 4%
Street % Buy: 70%
Thesis: “Growth reacceleration story with a runway to outsized free cash flow.”
